We develop a continuous-time industry equilibrium model of monopolistic competition to understand how product markups are determined in the presence of external financing costs and customer capital. Firms optimally set markups to balance the tradeoff between profiting from their existing customer base and developing their future customer base. We characterize how the equilibrium markups are determined by the interaction between the marginal value of corporate liquidity and the marginal value of customer base. Firms’ markups are more responsive to changes in their marginal value of corporate liquidity when the marginal value of customer base is higher. Moreover, the model predicts that greater product market threats lead to more conservative financial policies, which is supported by the data. This paper was accepted by Gustavo Manso, finance.
{"title":"External Financing and Customer Capital: A Financial Theory of Markups","authors":"W. Dou, Yan Ji","doi":"10.2139/ssrn.2574953","DOIUrl":"https://doi.org/10.2139/ssrn.2574953","url":null,"abstract":"We develop a continuous-time industry equilibrium model of monopolistic competition to understand how product markups are determined in the presence of external financing costs and customer capital. Firms optimally set markups to balance the tradeoff between profiting from their existing customer base and developing their future customer base. We characterize how the equilibrium markups are determined by the interaction between the marginal value of corporate liquidity and the marginal value of customer base. Firms’ markups are more responsive to changes in their marginal value of corporate liquidity when the marginal value of customer base is higher. Moreover, the model predicts that greater product market threats lead to more conservative financial policies, which is supported by the data. This paper was accepted by Gustavo Manso, finance.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121578164","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate structural change in the PR China during a period of particularly rapid growth 1998-2014. For this, we utilize sectoral data from the World Input-Output Database and firm-level data from the Chinese Industrial Enterprise Database. Starting with correlation laws known from the literature (Fabricant's laws), we investigate which empirical regularities hold at the sectoral level and show that many of these correlations cannot be recovered at the firm level. For a more detailed analysis, we propose a multi-level framework, which is validated with empirically. For this, we perform a robust regression, since various input variables at the firm-level as well as the residuals of exploratory OLS regressions are found to be heavy-tailed. We conclude that Fabricant's laws and other regularities are primarily characteristics of the sectoral level which rely on aspects like infrastructure, technology level, innovation capabilities, and the knowledge base of the relevant labor force. We illustrate our analysis by showing the development of some of the larger sectors in detail and offer some policy implications in the context of development economics, evolutionary economics, and industrial organization.
{"title":"Levels of Structural Change: An Analysis of China's Development Push 1998-2014","authors":"T. Heinrich, Jangho Yang, Shuanping Dai","doi":"10.2139/ssrn.3593018","DOIUrl":"https://doi.org/10.2139/ssrn.3593018","url":null,"abstract":"We investigate structural change in the PR China during a period of particularly rapid growth 1998-2014. For this, we utilize sectoral data from the World Input-Output Database and firm-level data from the Chinese Industrial Enterprise Database. Starting with correlation laws known from the literature (Fabricant's laws), we investigate which empirical regularities hold at the sectoral level and show that many of these correlations cannot be recovered at the firm level. For a more detailed analysis, we propose a multi-level framework, which is validated with empirically. For this, we perform a robust regression, since various input variables at the firm-level as well as the residuals of exploratory OLS regressions are found to be heavy-tailed. We conclude that Fabricant's laws and other regularities are primarily characteristics of the sectoral level which rely on aspects like infrastructure, technology level, innovation capabilities, and the knowledge base of the relevant labor force. We illustrate our analysis by showing the development of some of the larger sectors in detail and offer some policy implications in the context of development economics, evolutionary economics, and industrial organization.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"68 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124744340","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Although the use of free samples is extensive across industries, the effects of free samples across individuals with varying levels of usage have yet to be systematically examined. The models discu...
{"title":"Experience Effect in the Impact of Free Trial Promotions","authors":"Sadat Reza, Hillbun Ho, Rich Ling, Hongyang Shi","doi":"10.1287/mnsc.2020.3613","DOIUrl":"https://doi.org/10.1287/mnsc.2020.3613","url":null,"abstract":"Although the use of free samples is extensive across industries, the effects of free samples across individuals with varying levels of usage have yet to be systematically examined. The models discu...","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125798049","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A. Bensoussan, Md. Abu Helal, V. Ramakrishna, S. Sethi
We study infinite-horizon stochastic inventory problems with general demand distributions and piecewise linear concave ordering costs. Such costs arise in the important cases of quantity discounts or multiple suppliers. We consider the case of concave cost involving two linear segments. This corresponds to the case of one supplier with a fixed cost, a variable cost up to a given order quantity, and a quantity discount beyond that or, equivalently, the case of two suppliers, one with a low fixed cost along with a high variable cost and the other with a high fixed cost along with a low variable cost. We show that certain three and four parameter generalizations of the classical (s,S) policy are optimal. Our contributions consist of generalizing the demand, solving a functional Bellman equation for the value function that arises in the infinite-horizon framework, and providing an explicit solution in a special case of the exponential demand. We also give conditions under which our generalizations of the (s,S) policy reduce to the standard (s,S) policy. Finally and importantly, our method is also new in the sense that we construct explicitly the value function and we do not therefore need to utilize the notion of K-convexity used in the literature of inventory problems with fixed costs.
{"title":"Optimal Policies for Inventory Systems with Piecewise-Linear Concave Ordering Costs","authors":"A. Bensoussan, Md. Abu Helal, V. Ramakrishna, S. Sethi","doi":"10.2139/ssrn.3601262","DOIUrl":"https://doi.org/10.2139/ssrn.3601262","url":null,"abstract":"We study infinite-horizon stochastic inventory problems with general demand distributions and piecewise linear concave ordering costs. Such costs arise in the important cases of quantity discounts or multiple suppliers. We consider the case of concave cost involving two linear segments. This corresponds to the case of one supplier with a fixed cost, a variable cost up to a given order quantity, and a quantity discount beyond that or, equivalently, the case of two suppliers, one with a low fixed cost along with a high variable cost and the other with a high fixed cost along with a low variable cost. We show that certain three and four parameter generalizations of the classical (s,S) policy are optimal. Our contributions consist of generalizing the demand, solving a functional Bellman equation for the value function that arises in the infinite-horizon framework, and providing an explicit solution in a special case of the exponential demand. We also give conditions under which our generalizations of the (s,S) policy reduce to the standard (s,S) policy. Finally and importantly, our method is also new in the sense that we construct explicitly the value function and we do not therefore need to utilize the notion of K-convexity used in the literature of inventory problems with fixed costs.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"12 2","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120807321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes downstream merchant price coherence when upstream platforms are vertically differentiated. When merchants are unable to charge different prices to consumers who purchase their product using different platforms, fee competition among platforms becomes more intense. We show that with price dispersion, platforms compete for market share while, with price coherence, they compete for the market. As a consequence, price coherence can increase consumer surplus and total welfare when the quality difference and its cost are intermediate. We also compare private and social incentives of a high-quality platform and a merchant to impose price coherence and we explore the effects of price dispersion on investment incentives.
{"title":"Platform Competition, Vertical Differentiation and Price Coherence","authors":"H. Gerlach, Junqian Li","doi":"10.2139/ssrn.3577437","DOIUrl":"https://doi.org/10.2139/ssrn.3577437","url":null,"abstract":"This paper analyzes downstream merchant price coherence when upstream platforms are vertically differentiated. \u0000 \u0000When merchants are unable to charge different prices to consumers who purchase their product using different platforms, fee competition among platforms becomes more intense. We show that with price dispersion, platforms compete for market share while, with price coherence, they compete for the market. \u0000 \u0000As a consequence, price coherence can increase consumer surplus and total welfare when the quality difference and its cost are intermediate. \u0000 \u0000We also compare private and social incentives of a high-quality platform and a merchant to impose price coherence and we explore the effects of price dispersion on investment incentives.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"213 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133536350","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Firms are collecting more data — about their operations, customers, and markets — in order to improve performance. Some of this data has value beyond a firm's boundary and thus can create value for other firms. Yet, we have relatively few facts about this market for data, its participants, and the types and value of data bought and sold by firms. We present preliminary descriptive evidence about the emerging data market using the information on over 1,600 data exchanges executed by 1,285 of the largest public and private firms. Our findings suggest that nearly 17% of these firms participate in the data market. Furthermore, 80% of the exchanges are for customer data, and over 50% of transactions are structured as mutual data sharing agreements rather than unidirectional sales. Among the firms in our sample, it is the largest firms in terms of valuation and those with significant data capabilities that buy and sell data. Moreover, we find that most exchanges appear to happen among firms in the same industry and with significant data science capabilities. These results suggest that the market for data may be consequential and call for further research.
{"title":"Some Data on the Market for Data","authors":"Morad Elsaify, Sharique Hasan","doi":"10.2139/ssrn.3568817","DOIUrl":"https://doi.org/10.2139/ssrn.3568817","url":null,"abstract":"Firms are collecting more data — about their operations, customers, and markets — in order to improve performance. Some of this data has value beyond a firm's boundary and thus can create value for other firms. Yet, we have relatively few facts about this market for data, its participants, and the types and value of data bought and sold by firms. We present preliminary descriptive evidence about the emerging data market using the information on over 1,600 data exchanges executed by 1,285 of the largest public and private firms. Our findings suggest that nearly 17% of these firms participate in the data market. Furthermore, 80% of the exchanges are for customer data, and over 50% of transactions are structured as mutual data sharing agreements rather than unidirectional sales. Among the firms in our sample, it is the largest firms in terms of valuation and those with significant data capabilities that buy and sell data. Moreover, we find that most exchanges appear to happen among firms in the same industry and with significant data science capabilities. These results suggest that the market for data may be consequential and call for further research.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"91 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124157716","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes how the current Global Value Chain (GVC) of East Asia has been established, and attempts to project the future trajectory of GVC under New Normal in the global trading system. For this purpose, the framework of Ideology-TechnologyInstitution nexus is presented with focus on the dynamics of interplay between ideology and technology, duly recognizing the dual-aspect of technology- a platform for business and also for national defense. The paper analyzes how the Information and Communication Technology (ICT) of the 1990s played a role of “facilitator” in shaping the GVC of East Asia, where China plays ‘factory for final assembly’ and the US plays ‘the largest consumer’. Under New Normal, digital technology is likely to play the opposite role of “disrupting” the GVC of East Asia, unlike ICT. The paper explores the mechanism behind this great disruption. What is driving New Normal is the US-China power competition, seeking for dominance in East Asia and beyond. This paper argues that New Normal is not temporary shock, but will last for some time. Under this presumption, the paper presents three scenarios for the future trajectory of GVC in East Asia.
{"title":"Global Value Chain in East Asia Under 'New Normal': Ideology-Technology-Institution Nexus","authors":"Byung-il Choi","doi":"10.2139/ssrn.3574488","DOIUrl":"https://doi.org/10.2139/ssrn.3574488","url":null,"abstract":"This paper analyzes how the current Global Value Chain (GVC) of East Asia has been established, and attempts to project the future trajectory of GVC under New Normal in the global trading system. For this purpose, the framework of Ideology-TechnologyInstitution nexus is presented with focus on the dynamics of interplay between ideology and technology, duly recognizing the dual-aspect of technology- a platform for business and also for national defense. The paper analyzes how the Information and Communication Technology (ICT) of the 1990s played a role of “facilitator” in shaping the GVC of East Asia, where China plays ‘factory for final assembly’ and the US plays ‘the largest consumer’. Under New Normal, digital technology is likely to play the opposite role of “disrupting” the GVC of East Asia, unlike ICT. The paper explores the mechanism behind this great disruption. What is driving New Normal is the US-China power competition, seeking for dominance in East Asia and beyond. This paper argues that New Normal is not temporary shock, but will last for some time. Under this presumption, the paper presents three scenarios for the future trajectory of GVC in East Asia.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"1984 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130569429","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The demand for services such as self-storage varies across locations, over time, as well as across customer segments. Service providers try to leverage these variations and maximize profits by adopting dynamic pricing policies. Implementing dynamic pricing, however, requires accurate estimates of price elasticities at a granular level. Using data from a leading self-storage retailer in Europe, we estimate a Bayesian Dynamic Hierarchical Linear Model (DHLM) to obtain price elasticities across 67 stores, for 21 bi-weeks, and high-valuation vs. low-valuation customer segments. Our estimation procedure accounts for price endogeneity, which is essential when using the estimated price elasticities to set the dynamic pricing policy. We find evidence of different price elasticities between stores and over time, which supports the practice of local dynamic price setting, as well as strong differences between customer segments. Overall, high-valuation customers are more price-sensitive than low-valuation customers. In addition, while the price elasticity of high-valuation customers remains stable, low-valuation customers become less price sensitive over time. This implies that a markup policy should be followed for low-valuation customers, but a more stable pricing regime may suffice for high-valuation customers. Last, we show the benefits of our model compared to a benchmark model with time-invariant price elasticities in determining the pricing policy, and discuss how our model can be applied to other industries that practice revenue management.
{"title":"Price Elasticity Variations across Locations, Time and Customer Segments: An Application to the Self-Storage Industry","authors":"S. Mullick, Nicolas Glady, S. Gelper","doi":"10.2139/ssrn.3285521","DOIUrl":"https://doi.org/10.2139/ssrn.3285521","url":null,"abstract":"The demand for services such as self-storage varies across locations, over time, as well as across customer segments. Service providers try to leverage these variations and maximize profits by adopting dynamic pricing policies. Implementing dynamic pricing, however, requires accurate estimates of price elasticities at a granular level. Using data from a leading self-storage retailer in Europe, we estimate a Bayesian Dynamic Hierarchical Linear Model (DHLM) to obtain price elasticities across 67 stores, for 21 bi-weeks, and high-valuation vs. low-valuation customer segments. Our estimation procedure accounts for price endogeneity, which is essential when using the estimated price elasticities to set the dynamic pricing policy. We find evidence of different price elasticities between stores and over time, which supports the practice of local dynamic price setting, as well as strong differences between customer segments. Overall, high-valuation customers are more price-sensitive than low-valuation customers. In addition, while the price elasticity of high-valuation customers remains stable, low-valuation customers become less price sensitive over time. This implies that a markup policy should be followed for low-valuation customers, but a more stable pricing regime may suffice for high-valuation customers. Last, we show the benefits of our model compared to a benchmark model with time-invariant price elasticities in determining the pricing policy, and discuss how our model can be applied to other industries that practice revenue management.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122717942","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mardi Dungey, T. Flavin, Thomas O'Connor, Michael Wosser
We investigate the systemic importance of U.S. industrial firms and analyse the firm-specific characteristics that identify systemically important industrials. We compute two firm-specific measures of systemic risk for 367 non-financial corporations and confirm that industrial firms are both vulnerable to systemic shocks and contribute to system-wide risk. Systemic risk measures exhibit substantial variation across firms and over time. Debt and trade credit are related to both dimensions of systemic risk, while a range of other firm characteristics are associated with systemic risk in at least one direction. The differences between the dimensions of risk and their associated characteristics underline the importance of analysing both measures of risk. Finally, we report some striking differences vis-A -vis the extant literature on banks and non-bank financials.
{"title":"Industrial Firms and Systemic Risk","authors":"Mardi Dungey, T. Flavin, Thomas O'Connor, Michael Wosser","doi":"10.2139/ssrn.3555836","DOIUrl":"https://doi.org/10.2139/ssrn.3555836","url":null,"abstract":"We investigate the systemic importance of U.S. industrial firms and analyse the firm-specific characteristics that identify systemically important industrials. We compute two firm-specific measures of systemic risk for 367 non-financial corporations and confirm that industrial firms are both vulnerable to systemic shocks and contribute to system-wide risk. Systemic risk measures exhibit substantial variation across firms and over time. Debt and trade credit are related to both dimensions of systemic risk, while a range of other firm characteristics are associated with systemic risk in at least one direction. The differences between the dimensions of risk and their associated characteristics underline the importance of analysing both measures of risk. Finally, we report some striking differences vis-A -vis the extant literature on banks and non-bank financials.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129814344","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with differences in firms’ investment and labor demand.
{"title":"How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-Scale Business Survey","authors":"Jonas Dovern, Lena Sophia Müller, K. Wohlrabe","doi":"10.18452/21402","DOIUrl":"https://doi.org/10.18452/21402","url":null,"abstract":"Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with differences in firms’ investment and labor demand.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129788303","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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